COVID-19: 7 steps to help your business overcome this crisis
Posted: Tue Dec 10, 2024 8:51 am
The COVID-19 pandemic is having a widespread impact on businesses across the country. As of mid-March , 73% of businesses were already experiencing negative impacts, according to a BDC survey of more than 600 business owners across Canada.
In times of crisis, liquidity becomes even more important than it usually is for a business.
Creating a detailed continuity plan and cash flow forecast can help you maintain your current operations, albeit at a reduced capacity, and will facilitate recovery once the crisis is contained.
Everyone has been forced to cope and adapt. We hope the following steps will give you the clarity you need to plan and respond on a daily basis, as well as to control your cash flow and build operational resilience.
1. Start with health and safety
COVID -19 is a human problem, requiring a human response, so let's take care of our people first. Here are some important questions you can ask yourself.
Do you have best practices in place to ensure staff safety?
Those of you who are still working should focus on the health and safety practices you need to adopt to prevent transmission. Implement necessary safe distancing practices and incorporate the use of gloves, plexiglass barriers, and so on.
Can your staff work remotely?
Where possible, allow your staff to work from home to minimise contact and maintain social distancing. Can you start selling online? Can your services be offered remotely? Are you able to quickly launch a delivery service? Do your best to implement solutions that can maintain some of your revenue while keeping staff and customers safe.
Do you have a contingency plan for quarantined staff members?
What will you do if one or more people on your team are quarantined and can no longer work? Can someone else take their place? For example, consider creating different work teams with different skill sets to minimize the risk of your entire team being forced to isolate.
Is the processing of documents being expedited to reduce financial hardship for laid-off staff?
Be sensitive to the financial distress that staff may be experiencing. Look for ways to alleviate this problem in the best possible way. This will go a long way in building staff loyalty.
2. Prepare a communication plan
You can never overcommunicate during a crisis. Your communication plan should target:
the staff
the clientele
suppliers
Carefully craft a clear and concise message, schedule regular updates, and optimize the use of technology to send your messages. Delegate this task to someone you trust. It is very important.
3. Communicate with customers
As you begin to make changes to the way you do business, in the short term there will be a corresponding impact on your cash flow. As you make changes to your plan, you need to take the time to understand their financial impact and forecast cash flow accordingly.
Confirm order status
The first thing to do is communicate with your customer base. For those of you who are still operating, call your key customers and confirm that current and planned orders are still being completed.
You don't necessarily need to renegotiate payment terms, but you may need to postpone production or relax repayment terms, which will slow down cash flow.
Do your best to understand how these changes impact the timing and value of payment milestones.
Try to collect customer accounts
Second, start calling customers who owe you money. You need to understand if they have the ability to pay and when they will do so.
By being proactive, you can help determine when the money will come in. Over the next six to 12 weeks, monitor this regularly. If a client promises to pay in two weeks, send them a friendly reminder a week in advance and invite them to be open with you if they are still struggling.
It should therefore be one of the top three things you look at every morning.
Offer additional services
Finally, when you reach out to your customers, be brave and ask them if they need anything else: it’s possible that another supplier company has let them down, and you may be able to fill the gap. Consider this an opportunity to explore other options that could bring in additional funds.
4. Communicate with suppliers
Supply chains are under pressure and if your supplier is student database overseas or relies on imports, you risk disappointing your customers. Communicate with your supplier companies!
Confirm timely delivery of supplies
Call your suppliers to confirm that existing purchase orders will be fulfilled on time. Delays on their end could delay your production. It’s a good idea to be informed early so you can manage your customer expectations and update your cash flow plan. You may experience a decrease in your cash outflow if suppliers are late; however, if all goes well, it may increase.
Negotiate deferred payments
If possible, try to negotiate deferred payment terms for accounts payable. As with accounts receivable, you should monitor this regularly. If you promised to pay a supplier company in two weeks and can't, give them notice; since you have such expectations of your customers, extend the same courtesy to your suppliers. Again, you may experience a decrease in your cash outflow if your supplier companies agree to be paid later.
Find companies providing health and safety services and products
Finally, as you change your health and safety practices, it may be necessary to find other types of consumables. Spend money on them; plan for their replenishment as you would for other materials and consumables.
5. Assess capacity and resources
Now, let's move on to the other things you need to do besides managing customers and suppliers.
Change health and safety practices
You will need to change your health and safety practices. Industry leaders, for example, are telling customers how they are packaging and handling products in light of COVID -19 . You have the same responsibility. This will impact costs. Estimate this impact and factor it into your plan.
Aligning workforce and demand projections
As demand declines, aligning your workforce with production needs will be your next challenge. Many of you have already tackled this, and more will need to do so soon.
The temporary wage subsidy for employers , recently announced by the Government of Canada, will help you keep as many staff members as possible.
Reduce your recurring operating expenses
Third, look for recurring operating expenses that can be suspended in the short term.
Is it possible to reach an agreement with your landlord to defer the rent?
Can you temporarily reduce some of your communication costs?
Can you stop getting laundry services for uniforms?
A line-by-line review of your expenses is essential to determine where you can cut costs in the short term. Every dollar counts. You may also find other, more sustainable cost savings that you can take advantage of after the recovery.
Every time you receive a new bill, ask yourself if this expense is really necessary.
And, of course, make sure to just defer your discretionary expenses. This could be meals, travel, etc.
6. Compile your weekly cash flow plan
You now have very specific strategies to implement. By grouping them together in a cash flow plan, you will be able to determine exactly how much working capital you need.
Enlarge image
Here we present a spreadsheet that details cash flow from week to week. Note that these are “rolling” cash flow forecasts. This means that they need to be updated at the beginning and end of each week. They are based on a 13-week period, but you may need to use a longer period.
The cash flow plan acts as a gas gauge for your business. Cash is the fuel your business has; the cash flow plan is the measure of how much working capital you will need to reach your destination after recovery.
List the cash inflows
First, you need to list your cash inflows: accounts receivable, cash sales, wage subsidies, etc. could be other sources of cash. This information is obtained by talking to your customers.
This example shows how cash inflows from accounts receivable decrease over the weeks. This may not be the case for you.
List the cash outflows
We then list the cash outflows: accounts payable, recurring monthly payments, and so on.
You have now analyzed your expenses and taken corrective action to reduce headcount and operating expenses. You have clearly defined these expenses over time, giving you an idea of how your cash outflows are occurring. You will also need to include your loan obligations.
Analyze cash flow forecasts
Once you have all your cash inflows and outflows well established, you will be able to analyze the results. In the example, at the beginning of week 1, the entrepreneur has an opening cash balance of $2,000. He expects to have a net expense of $1,100 and for his balance at the end of the week to be reduced to $900.
So everything is fine for week 1. But look what happens in week 2: cash outflows start draining the bank account into a deficit position. After 13 weeks, the cash deficit is $20,750.
The purpose of this exercise is to determine what that number is for you. This will tell you how much working capital you need and provide you with information to support a working capital loan application .
If you like cash flow modeling and have the time, you can look at different scenarios and so on. It's up to you. Your accountant can also help you. Contact him or her and see if he or she is able to do it. Time is of the essence.
7. Prepare yourself for recovery
There is a light at the end of the tunnel. We just don't know how long this situation will last.
Enlarge image
Here we have overlaid business activity with the progression of active COVID-19 cases . You will see that once the number of cases peaks, we will recover. When the recovery happens, you will need to stay ahead of the curve:
confirm orders
buy materials
recall your employees
receive new shipments
ensure operationalization
Also plan your cash flow for the recovery phase. When things start to return to normal, you will need to spend money to make money. It would be a shame to face the trough and not have the resources to turn your business around.
In our opinion, all your plans should include a recovery period of at least four weeks. As you update your cash flow each week, this recovery will automatically be incorporated into your working capital estimates. As orders return, you will have the funds needed to operate.
In times of crisis, liquidity becomes even more important than it usually is for a business.
Creating a detailed continuity plan and cash flow forecast can help you maintain your current operations, albeit at a reduced capacity, and will facilitate recovery once the crisis is contained.
Everyone has been forced to cope and adapt. We hope the following steps will give you the clarity you need to plan and respond on a daily basis, as well as to control your cash flow and build operational resilience.
1. Start with health and safety
COVID -19 is a human problem, requiring a human response, so let's take care of our people first. Here are some important questions you can ask yourself.
Do you have best practices in place to ensure staff safety?
Those of you who are still working should focus on the health and safety practices you need to adopt to prevent transmission. Implement necessary safe distancing practices and incorporate the use of gloves, plexiglass barriers, and so on.
Can your staff work remotely?
Where possible, allow your staff to work from home to minimise contact and maintain social distancing. Can you start selling online? Can your services be offered remotely? Are you able to quickly launch a delivery service? Do your best to implement solutions that can maintain some of your revenue while keeping staff and customers safe.
Do you have a contingency plan for quarantined staff members?
What will you do if one or more people on your team are quarantined and can no longer work? Can someone else take their place? For example, consider creating different work teams with different skill sets to minimize the risk of your entire team being forced to isolate.
Is the processing of documents being expedited to reduce financial hardship for laid-off staff?
Be sensitive to the financial distress that staff may be experiencing. Look for ways to alleviate this problem in the best possible way. This will go a long way in building staff loyalty.
2. Prepare a communication plan
You can never overcommunicate during a crisis. Your communication plan should target:
the staff
the clientele
suppliers
Carefully craft a clear and concise message, schedule regular updates, and optimize the use of technology to send your messages. Delegate this task to someone you trust. It is very important.
3. Communicate with customers
As you begin to make changes to the way you do business, in the short term there will be a corresponding impact on your cash flow. As you make changes to your plan, you need to take the time to understand their financial impact and forecast cash flow accordingly.
Confirm order status
The first thing to do is communicate with your customer base. For those of you who are still operating, call your key customers and confirm that current and planned orders are still being completed.
You don't necessarily need to renegotiate payment terms, but you may need to postpone production or relax repayment terms, which will slow down cash flow.
Do your best to understand how these changes impact the timing and value of payment milestones.
Try to collect customer accounts
Second, start calling customers who owe you money. You need to understand if they have the ability to pay and when they will do so.
By being proactive, you can help determine when the money will come in. Over the next six to 12 weeks, monitor this regularly. If a client promises to pay in two weeks, send them a friendly reminder a week in advance and invite them to be open with you if they are still struggling.
It should therefore be one of the top three things you look at every morning.
Offer additional services
Finally, when you reach out to your customers, be brave and ask them if they need anything else: it’s possible that another supplier company has let them down, and you may be able to fill the gap. Consider this an opportunity to explore other options that could bring in additional funds.
4. Communicate with suppliers
Supply chains are under pressure and if your supplier is student database overseas or relies on imports, you risk disappointing your customers. Communicate with your supplier companies!
Confirm timely delivery of supplies
Call your suppliers to confirm that existing purchase orders will be fulfilled on time. Delays on their end could delay your production. It’s a good idea to be informed early so you can manage your customer expectations and update your cash flow plan. You may experience a decrease in your cash outflow if suppliers are late; however, if all goes well, it may increase.
Negotiate deferred payments
If possible, try to negotiate deferred payment terms for accounts payable. As with accounts receivable, you should monitor this regularly. If you promised to pay a supplier company in two weeks and can't, give them notice; since you have such expectations of your customers, extend the same courtesy to your suppliers. Again, you may experience a decrease in your cash outflow if your supplier companies agree to be paid later.
Find companies providing health and safety services and products
Finally, as you change your health and safety practices, it may be necessary to find other types of consumables. Spend money on them; plan for their replenishment as you would for other materials and consumables.
5. Assess capacity and resources
Now, let's move on to the other things you need to do besides managing customers and suppliers.
Change health and safety practices
You will need to change your health and safety practices. Industry leaders, for example, are telling customers how they are packaging and handling products in light of COVID -19 . You have the same responsibility. This will impact costs. Estimate this impact and factor it into your plan.
Aligning workforce and demand projections
As demand declines, aligning your workforce with production needs will be your next challenge. Many of you have already tackled this, and more will need to do so soon.
The temporary wage subsidy for employers , recently announced by the Government of Canada, will help you keep as many staff members as possible.
Reduce your recurring operating expenses
Third, look for recurring operating expenses that can be suspended in the short term.
Is it possible to reach an agreement with your landlord to defer the rent?
Can you temporarily reduce some of your communication costs?
Can you stop getting laundry services for uniforms?
A line-by-line review of your expenses is essential to determine where you can cut costs in the short term. Every dollar counts. You may also find other, more sustainable cost savings that you can take advantage of after the recovery.
Every time you receive a new bill, ask yourself if this expense is really necessary.
And, of course, make sure to just defer your discretionary expenses. This could be meals, travel, etc.
6. Compile your weekly cash flow plan
You now have very specific strategies to implement. By grouping them together in a cash flow plan, you will be able to determine exactly how much working capital you need.
Enlarge image
Here we present a spreadsheet that details cash flow from week to week. Note that these are “rolling” cash flow forecasts. This means that they need to be updated at the beginning and end of each week. They are based on a 13-week period, but you may need to use a longer period.
The cash flow plan acts as a gas gauge for your business. Cash is the fuel your business has; the cash flow plan is the measure of how much working capital you will need to reach your destination after recovery.
List the cash inflows
First, you need to list your cash inflows: accounts receivable, cash sales, wage subsidies, etc. could be other sources of cash. This information is obtained by talking to your customers.
This example shows how cash inflows from accounts receivable decrease over the weeks. This may not be the case for you.
List the cash outflows
We then list the cash outflows: accounts payable, recurring monthly payments, and so on.
You have now analyzed your expenses and taken corrective action to reduce headcount and operating expenses. You have clearly defined these expenses over time, giving you an idea of how your cash outflows are occurring. You will also need to include your loan obligations.
Analyze cash flow forecasts
Once you have all your cash inflows and outflows well established, you will be able to analyze the results. In the example, at the beginning of week 1, the entrepreneur has an opening cash balance of $2,000. He expects to have a net expense of $1,100 and for his balance at the end of the week to be reduced to $900.
So everything is fine for week 1. But look what happens in week 2: cash outflows start draining the bank account into a deficit position. After 13 weeks, the cash deficit is $20,750.
The purpose of this exercise is to determine what that number is for you. This will tell you how much working capital you need and provide you with information to support a working capital loan application .
If you like cash flow modeling and have the time, you can look at different scenarios and so on. It's up to you. Your accountant can also help you. Contact him or her and see if he or she is able to do it. Time is of the essence.
7. Prepare yourself for recovery
There is a light at the end of the tunnel. We just don't know how long this situation will last.
Enlarge image
Here we have overlaid business activity with the progression of active COVID-19 cases . You will see that once the number of cases peaks, we will recover. When the recovery happens, you will need to stay ahead of the curve:
confirm orders
buy materials
recall your employees
receive new shipments
ensure operationalization
Also plan your cash flow for the recovery phase. When things start to return to normal, you will need to spend money to make money. It would be a shame to face the trough and not have the resources to turn your business around.
In our opinion, all your plans should include a recovery period of at least four weeks. As you update your cash flow each week, this recovery will automatically be incorporated into your working capital estimates. As orders return, you will have the funds needed to operate.